Why Powell Could Be Out at the Fed, and What It Means for Markets
Fed Chairman Jerome Powell, shown at a Senate panel hearing on the Cares Act on Tuesday, would almost certainly win renomination, but his chances took a small hit this past week.
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It was easy to miss one development in Washington, D.C., that has more potential consequence for investors than partisan brinkmanship over a debt ceiling that must get lifted and intraparty fighting over just how many trillions will be spent over the next decade.
When Federal Reserve Chairman Jerome Powell testified before the Senate Banking Committee on Tuesday, he defended the Fed’s response to the Covid pandemic, updated Senators on the status of emergency facilities, and fielded questions about the state of the economy. He also took a lambasting from Sen. Elizabeth Warren (D., Mass.) that, while not altogether surprising, was jarring in light of the looming expiration of his four-year term.
“Your record gives me grave concern,” Warren said to Powell. “You have acted to make our banking system less safe, and that makes you a dangerous man to head up the Fed.” With that, Warren said she will oppose a Powell renomination.
On its face, Warren’s opposition seems safe to dismiss. After all, many politicians use televised hearings to grandstand and zing. Warren’s displeasure with Powell over his support for policies that have eased bank regulation isn’t new, and economists and Washington insiders alike say that Powell has strong bipartisan support. But the question isn’t whether Powell would be confirmed; he would be.
The bigger issue is how badly Warren wants Powell gone, how loud she is behind the scenes, and how closely President Joe Biden is listening. In context of the multilayer mess in Washington that has progressive Democrats pitted against moderates and battling for control of the party, investors should begin to ponder the possibility that Powell won’t be renominated.
As Ed Yardeni, president of Yardeni Research, puts it, “Is Powell ‘transitory?’ ” Powell has often said that this year’s surge in inflation is likely…
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